Why is the instrumental used here?
Instrumental can be used for roles or professions, especially if they're temporary.
See this also: https://www.duolingo.com/comment/25250834
would "Are those students girls?" be translated to Czech differently?
I expect that it would; possibly, for example, as "Jsou ti studenti dívky?"
That is indeed a possible sentence, if we have no specific information about them.